'Are we ever going to make this picture?'

It started off in 1970 as a 'western in outer space' intended to star Malcolm McDowell. Now, three decades and $100m later, Gangs of New York is ready for its audience. Alex Williams meets America's foremost director to discuss the most anticipated film of his career

You might say that the biggest lesson Martin Scorsese learned about selling his film Gangs of New York to the mass market happened before he ever got a green light for it. In the mid-1990s, Hollywood's most venerated, auteurish director wrangled $50m to make a different epic of the streets, Casino - a sort of Gangs of Las Vegas. The film went over schedule and over budget, and Scorsese, as usual, displayed the passion of Saint Jude - the patron saint of desperate causes - in trying to chase down the movie he saw in his mind.

But for one preview audience, things came to a head early on - specifically, a crunching, eyeball-popping prosthetic head in the infamous scene in which Joe Pesci interrogates a stubborn mobster by crushing his head in a vice. "The audience started to leave!" groans Scorsese, sheepishly recalling the experience in the gilded elegance of his midtown townhouse.

This time around, Scorsese has no intention of producing that sort of reaction. On January 10, Gangs of New York, the movie Scorsese burned to make for 30 years, opens at long last. The film is not quite the bloodbath that many in Hollywood had come to expect. But at a James Cameron-scale budget of $100m (twice the cost of any previous Scorsese movie), Gangs still raises a big question: will a James Cameron-size audience want to sit still for an unflinching, weighty and wildly ambitious three-hour epic from New York's high priest of urban dystopia?

"I don't know," Scorsese says with a shrug. "When I'm making a film, I'm the audience."

Nevertheless, Scorsese did what he could this time to craft a crowd-pleaser. He cast Leonardo DiCaprio in his first monster picture since Titanic, and Daniel Day-Lewis in his much-anticipated return from five years of self-imposed exile, during which he worked for a time as an apprentice cobbler in Italy.

Scorsese laboured to produce at once a sumptuous costume drama, a sweeping romance and a taut revenge tale. What he ended up with was, well, a Scorsese movie - tense, gritty, spontaneously brutal and, when you least expect it, ecstatic. Imagine Gone With the Wind as narrated by Travis Bickle. But maybe that's appropriate. Over the past 15 months, the world has started to feel like a Scorsese movie.

"When I first met Marty in 1972, he told me that there were two books he wanted to make, Gangs of New York and The Last Temptation of Christ," recalls Paul Schrader, who has written four Scorsese movies, including Taxi Driver. "It struck me that these were rather grandiose ambitions for someone whose most important credit was a Roger Corman film. But I've never seen Martin Scorsese intimidated by an audacious suggestion. It's the opposite - it perks him to life like the Energizer bunny."

While Gangs is Scorsese's most audacious movie, it is also among his most personal. The film takes place during the years leading up to the Civil War in the infamous downtown slum known as the Five Points, home to flamboyant Irish gangs like the Plug Uglies and the Dead Rabbits. The Points once lay only blocks from the Elizabeth Street tenement where Scorsese grew up (by that time, the neighbourhood had been razed to build a federal courthouse). "My father had this mythological sense of the old New York, and he used to tell me stories about these old gangs, particularly the Forty Thieves in the Fourth Ward," Scorsese recalls. "They still took the name in the 1930s, even though the neighbourhood had become Italian by then."

In the film, there is no shortage of archetypes familiar from Scorsese's youth. Bill "The Butcher" Cutting (based on an actual historical figure, played by Day-Lewis) rails against immigrants as a nativist crusader, but he's basically a mob boss wrapped in the Stars and Stripes. Amsterdam Vallon (DiCaprio) is a street kid both seduced by Bill's power and bound by honour to avenge Bill's killing of his father. DiCaprio's love interest, Jenny Everdeane (Cameron Diaz), is a cunning pickpocket trying to steal a better life.

In Gangs, as in the Little Italy of Scorsese's formative years, a distinctive urban dread wafts through even the moments of colour and joy. Life is something that's lived out with a time bomb audibly ticking.

"Where I grew up, half a block away was the Bowery. These poor men were out of their minds, and anything could happen, at any second," Scorsese says. "All my life, I never really felt comfortable anywhere in New York, except maybe in an apartment somewhere."

In this movie, the bomb ends up going off - and in Technicolor fashion. As Amsterdam and Bill finally square off, the city erupts into the apocalyptic Draft Riots of 1863 - "the worst loss of life in American history until September 11," says Scorsese.

From the outset, Gangs feels like the New York movie Scorsese has been building up to for his entire career. The odyssey began on January 1 1970, when Scorsese, staying at a friend's house, ran across a copy of The Gangs of New York, Herbert Asbury's 1928 history of Five Points. Scorsese immediately called a friend, screenwriter Jay Cocks.

"Marty said, 'Think of it like a western in outer space,'" Cocks recalls with a laugh. It was all very 1970s. There was lots of talk about A Clockwork Orange and writing the lead for Malcolm McDowell. They would frame the narrative with Springsteen quotes, but otherwise keep the period slang bafflingly authentic. All of which is why Gangs never made it out of the 1970s.

"Jay and I put together the first draft in 1977," Scorsese recalls. "Next thing I knew, I was directing Raging Bull. That film was similar to this one, a kamikaze film - I put everything I knew into it, and if it was going to sink, it was going to sink, and I didn't care."

Ten days after Raging Bull opened in 1980, Heaven's Gate, the quintessential megaflop, was released by the same studio, United Artists. "The era of big-budget personal film-making was over," Scorsese says ruefully. "I was going to move on to other things - go to Italy and make documentaries. I didn't think there was any place for me in Hollywood anymore."

Scorsese stayed, only to grow more mythic in the eyes of confirmed cineastes, but his unsettling tone poems like After Hours and King of Comedy ran aggressively counter to Hollywood's blockbuster sensibility during the Top Gun 1980s. From the outside, he appeared to have cashed his last "indulge the genius" coupon to make The Last Temptation of Christ, a picture that seemed to attract as many picketers as viewers. Even after Goodfellas and Cape Fear revived his commercial credibility in the early 1990s, studios were wary of letting Scorsese be too Scorsese.

"People always point to Heaven's Gate, or my New York, New York - all these other pictures that went way over budget," he confides. "I think that's always been a problem for me."

Then, on location for 1993's The Age of Innocence in Troy, New York, Scorsese ran across an 1896 photo of a burned-out building, hauntingly dripping with icicles. He turned to his production designer, Dante Ferretti, and announced, "I want this to be the first image in my next movie, Gangs of New York'.

"What Scorsese got financing for was Casino. Next, it was Kundun. After each film, Ferretti says, Scorsese would insist that Gangs was next. "Finally, I asked him, 'Are we ever going to make this picture?'"

Ferretti recalls. Scorsese was pitching the project relentlessly. It's just that no studio had the guts to take it on. Only when Mike Ovitz visited Scorsese on the Hell's Kitchen set of Bringing Out the Dead in 1998 and offered up Leonardo DiCaprio - the centerpiece client of his new, and ill-fated, company, Artists Management Group - did Gangs finally look bankable. Not surprisingly, it was Miramax that took the dare.

"I've wanted to work with Marty in any capacity I can for years, and he'd always been tied up with someone or something else," explains Miramax chief Harvey Weinstein, who considers himself a friend as well as a fan. "The minute there was an opening, I jumped in with both feet."

Still, Harvey-versus-Marty had Ali-Foreman written all over it. The personal styles of these heavyweights of New York film couldn't have been more different. The hulking Harvey is a bombastic Barnum, a bellower, an intimidator. "Harvey's a showman," Scorsese says diplomatically. The diminutive Marty, meanwhile, is neurotic, cerebral, logorrheic - and just as intimidating. "Marty and I had a very similar vision," Weinstein says sardonically. "We had Marty's vision."

From the outset, Scorsese made no secret of his ambitions. Early on, he handed cinematographer Michael Ballhaus a lavish book of Rembrandt prints and told him this was how the film should look.

"He loved the use of light and shadows," Ballhaus explains. Scorsese even foisted a syllabus on Weinstein. "Marty made me watch 80 movies," says Weinstein. "Eighty. Can you imagine? How about The Man Who Laughs with Conrad Veidt, a 1928 silent movie with the worst organ music you've ever heard? And remember: no videos, no DVDs. Every movie has to be on the big screen. It was like going to school with Professor Scorsese."

Defying Hollywood's drift toward computer graphics, Miramax agreed to build a spectacular recreation of the Five Points, designed by Ferretti, at the famed Cinecitta studios in Rome. The atmosphere on the set proved nearly as volatile as in the old ghetto itself. Day-Lewis didn't simply play the homicidal Bill the Butcher but became him. If he called his agent back in New York, he spoke to the secretary as Bill. He practised tapping his eyeball - covered in prosthetic glass, to simulate Bill's fake eye - with the tip of a sharp knife to learn to do it without blinking. Every morning, the idiosyncratic actor would pump iron in a gym under Scorsese's office, Eminem throbbing up through the floorboards.

"He was filled with this extraordinary rage, and he just stayed that way for seven months," Scorsese says, sounding a bit envious.

Obsession became infectious. During the last week of shooting, Scorsese and Ballhaus were inside a tent peering at a live video feed from the set when they noticed, on the fringes, a fight breaking out. It was DiCaprio and Bill going at it, getting very Methody, clawing away at each other and rolling around in the dirt to the point of near-exhaustion, even though the cameras weren't yet rolling. "You remember that kid in This Boy's Life? He's not like that any more," Day-Lewis recalls with grudging admiration. "I'll tell you, I'm glad I had been working out."

The scale of the project required the usually reserved Scorsese to play the general, Day-Lewis says. So there Scorsese was, whirring around the twisting streets among hundreds of Italian extras in a golf cart, as if it were Patton's white steed. He would park long enough to explain to the costume people precisely how much dirt to grind into each garment. "There was one rack for lower-class characters, one rack for middle-class," says Thelma Schoonmaker, Scorsese's longtime editor. "Marty's very meticulous."

Weinstein, meanwhile, had concerns of his own. Lots of them. Why cast two of Hollywood's premier heartthrobs then cover them in grime? What's with that bizarre stovepipe hat on Daniel? What about his garish plaid trousers? Miramax sent out ceaseless memos detailing Weinstein's concerns - "It was constant," Scorsese moans - but they couldn't have fallen on deafer ears. "There was one that said there was 'too much oil in the hair'," Day-Lewis says with a chuckle. "So I said, 'Great, let's put some more oil in.' When I bumped into Harvey on the stairs at Cinecitta, I said, 'Harvey, I got the message about you wanting more oil in my hair. Is it okay now?'"

For one scene, Scorsese insisted on a historically accurate Rat Pit, in which a single terrier fought against dozens of sewer rats while onlookers placed bets. For another, he demanded a jar of human ears on the bar of Bill's brothel headquarters, Satan's Circus. "Harvey didn't want the rats. He didn't want the ears," Scorsese says with a dismissive wave. "I mean, you give an ear, you get a drink. That's the way it was. You don't have to dwell on it."

Weinstein, however, thinks too much has been made of the give-and-take. "There was no give-and-take," he says with a wheezy chuckle. "All the things I asked Marty not to do, he did. And you know what? I'm totally fine with all of it. Make no mistake, this is Marty's movie, top to bottom, completely uncompromising. And I didn't ask for compromise."

As the budget ballooned beyond its original $84m up to $100m, however, Miramax began to assert more influence. "I was there for the last week of shooting. The pressure on Marty was extraordinarily intense," Cocks says. "He was shooting the final confrontation between Daniel and Leo, and they actually made him stop before he got all the shots. They said, 'That's it, that's it!' It's like you're running the vacuum cleaner and they pull the plug out. So Marty actually had to go back when the movie was already put together and get a few more shots in New York because he didn't have enough coverage."

"We went over a few dollars, and so what?" Weinstein says now. "I made this movie for Marty. I served him. That's what I did as producer on this film. For Marty, hopefully, it will be vindication at the end of a long, hard, 27-year road." For his part, Weinstein's great "gamble" is already looking more and more like a sure thing. He sold off the foreign rights alone, to British TV producer Graham King, for $65m.

Still, given the potent brew of personalities, it was natural that rumours would flourish, and they did. There was chatter, apparently baseless, that Leo's weight was ballooning on Roman pasta, or that he was on a star trip and clashing with Scorsese.

"All bullshit," Ballhaus says wearily. But then Miramax started to push back the release date - Weinstein originally pushed for a Christmas 2001 release but determined that the film was too brutal for the raw nerves of the country after 9/11. It seemed almost impossible that this behemoth would ever stay afloat.

"The film has taken on an aura of mystery. There's been so much hogwash written about it," Day-Lewis says. "But that's provided a kind of smokescreen under which Martin has just quietly got on with making the film he wanted to make."

As the wind hurls raindrops violently against the tall windows at the rear of his townhouse, the director looks oddly serene, warmed by the room's golden glow as he sips coffee from a china cup beneath a gigantic 1930s poster for Renoir's Grand Illusion. There's some reason, at last, for serenity, and it's not just tonight's safety from a storm. The behemoth, to say the least, floats.

Regardless, the conversation can't quite seem to remain buoyant. It's a nasty world, Scorsese agrees - a world of too much passion and too little sense, of ancient blood feuds and perilous clannishness. We're talking about the world of Gangs but also the world in general. "We're in it now. The whole world is in it," he says. "The whole world is New York now, New York in the 19th century. We're going to have to learn to smile and deal with everybody. In the meantime, there's going to be a lot of damage, and there's a war. It's a state of war that will probably go on for a couple of hundred years."

For anyone else, it's a dreary thought. But as Scorsese talks, the eyebrows as coarse as boar bristles begin to dance behind his huge black-framed eyeglasses. That perverse titillation over looming disorder once made Scorsese seem unique. For most of his career, the violence of Scorsese's movies seemed excessive, phantasmagoric. Well, the world caught up. Scorsese, ironically, has moved on. In Gangs, it's the ever-present threat of violence, not actual gore, that frays the nerves.

"In this movie, I wanted to create another world, one that's very primitive," he says. "A lot of the violence is actually implied through editing, because ultimately, that world is violent in such a way that it's everyday violence. You become numb to it."

Scorsese sits quietly for a moment but seems unable to pull himself from the topic. "Some of my films are known for the depiction of violence," he says, choosing his words with precision. "I don't have anything to prove with that any more. I don't feel the poetry of violence the way Peckinpah used to."

Another pause. Scorsese can't quite abandon the matter. "You take Casino. There's the scene where Joe Pesci's character and his younger brother are killed by their closest friends with baseball bats in a cornfield. That way of life that we depicted, that's where it really ends - your closest friend smashing you in the head with a baseball bat. Not even a gun. Not cutting your throat."

The eyebrows ominously begin to twitch once again. "You're going to get hit - many times - and you're still going to be breathing when they put the dirt on you. If you want to live in that lifestyle, that's where you're going to go."

Funny, but that sounds just a little like the "lifestyle" Scorsese himself has chosen. If you're bold enough to take on Hollywood, history, and Harvey Weinstein, you will get hit. They will throw the dirt on you. The point is, you will still be breathing in the end - which makes it only more ironic when Scorsese adds, with a weary smile: "If that isn't a deterrent, I don't know what is."